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iTunes sales 'collapsing'

Digital flatline looks ominous for music labels

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The leading DRM digital download service, Apple's iTunes, has experienced a collapse in sales revenues this year according to analyst company Forrester Research.

Secretive Apple doesn't break out revenues from iTunes, but Forrester conducted an analysis of credit card transactions over a 27-month period. And this year's numbers aren't good.

While the iTunes service saw healthy growth for much of the period, since January the monthly revenue has fallen by 65 per cent, with the average transaction size falling 17 per cent. The previous spring's rebound wasn't repeated this year.

And it isn't just Apple's problem. Nielsen Soundscan has grimmer news for prospective digital download services, indicating three consecutive quarters of flat or declining revenues for the sector as a whole.

Speaking to The Register, Forrester analyst Josh Bernoff warned against extrapolating too much from the figures.

It may reflect a seasonal bounce that hasn't yet manifested itself. However, it might not.

"There's no indication of enormous growth coming," he told us. "When you look at this alongside the SoundScan numbers, you may ask 'Where's the part were we're supposed to get excited?'."

The ominous trend comes despite healthy growth for digital music players - iPod sales quadrupled in the period monitored by Forrester - and Apple's growing inventory - the company has added videos and movies to its established inventory of music downloads and audiobooks.

Three times a year

Forrester revealed some fascinating details about iTunes purchasing habits. Some 3.2 per cent of online households (around 60 per cent of the wider population) bought at least one download, and these dabblers made on average 5.6 transactions, with the median household making just three a year. The median transaction was slightly under $3.

No one in music gets rich from a stampede of interest like this.

(The figures don't include gifts redeemed via the iTunes Store. While Apple can argue this does not reflect the volume of transactions taking place, it gives a more accurate picture of what customers are actually prepared to pay for.)

Bernoff makes a fascinating comparison between the public's appetite for buying CDs over the internet, and its lack of appetite for DRM songs. Online individuals (rather than households) bought 1.7 CDs over the internet per quarter.

"The comparatively modest iTunes numbers suggest that consumers are still spending the bulk of their music budget $14-at-a-time on shiny discs," he writes.

"iTunes sales are not cutting into CD sales," he elaborated to us, "they're an incremental purchase at best.

"There's a problem here. CD sales have fallen 20 per cent over five years. The message here is not that CD sales are coming back, the ability to obtain pirated music is now so widespread the DRM looks to consumers more like a problem than a benefit."

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